FDIC Proposes Changes to Bank Merger Review Process

The Proposed Rule seeks to redefine the scope of merger transactions to include six types of transactions. It specifies that an “interstate merger transaction” involves a state nonmember bank establishing a branch in a different state. Additionally, any transaction where an insured depository institution acquires 80% or more of another institution's assets within a rolling 12-month period will be defined as a “merger in substance,” measured by the assets of the transferor. New terms, such as “significant asset transfers,” will categorize transactions that increase the acquiring institution’s assets by 25% or more over the same time period, with certain exemptions.

To streamline the application review process, the Proposed Rule establishes clear processing timelines for various types of mergers, generally reducing the historical average processing times. The FDIC will have 21 days to determine if a filing is “substantially complete.” If deficiencies are identified, applicants will typically have 30 days to respond.

A new category for “de minimis” transactions will expedite reviews for acquisitions with asset values below 5% of the acquirer's assets. These transactions will require a simplified filing and will be automatically approved within five business days after a complete submission.

For corporate reorganizations that qualify, decisions are expected within 30 days of a substantially complete filing. Furthermore, the FDIC will update its expedited processing for eligible institutions, increasing the asset threshold from 10% to 25% of the acquiring institution's total assets, with decisions required within 45 days.

Standard processing timelines will vary based on conditions, with the FDIC required to act within 90 days for institutions with less than $50 billion in assets and within 150 days for other transactions, allowing for single extensions of up to 90 or 120 days, respectively.

The Proposed Rule also introduces a new supervisory notice process for significant asset transfers that will involve a 30-day review period, potentially extendable to 60 days. Public notice requirements for most transactions will be reduced.

In terms of competitive analysis, the FDIC plans to modernize its approach by incorporating thrift deposits fully and including relevant credit union shares and centrally-booked deposits in its competitive measures, deviating from current practices that exclude these entities. A proposed competitive effects safe harbor aims to simplify the approval process for transactions where the post-merger Herfindahl-Hirschman Index (HHI) remains under a specified threshold.

The FDIC will also evaluate other statutory factors of the BMA through a new framework focused on the resulting institution’s capabilities rather than legacy issues of merging entities. This includes assessing financial and managerial resources, scrutinizing remediation plans, and ensuring compliance with laws such as the Community Reinvestment Act (CRA).

The Proposed Rule represents a significant shift in processing and evaluation practices, aiming to adapt to the evolving landscape of the banking industry. Financial institutions should prepare for changes in application procedures and compliance requirements as they plan their mergers.